The evolution of the global economy is determined by:
the decisions and actions of its actors (individuals, groups, institutions); and
the repercussions of these decisions and actions within the system. Decisions themselves are driven by individual needs and convictions, social norms, economic conditions, political environments and technological
• More market actors • Larger market volumes • More information available
• Stronger quantitative effects associated with human activity
Size of network
increases
• Stronger interaction between market actors • More complex value-added chains
• Higher availability of information • Larger scope for effects of human activity
Complexity
increases
• Heterogeneous capabilities and needs of market actors; unequal distribution of resources
• Higher product diversity
• Varying availability of information • Strong global variability of market effects
Heterogeneity
increases
• Intensifying interaction dynamics • Faster change in production processes • Increase in information density
• Faster propagation of effects of human activity; delays in global distribution
Dynamism
opportunities. These drivers in turn are endogenous components of the system, and are themselves likewise governed by the global dynamic. The focal point for the emergence of global risks is ultimately the interplay of individual and institutional decisions under a given set of conditions. Herein lies a paradox: While the environment increases in complexity, the manner in which
individual decisions are made in a given situation tends not to do so. This is because these decisions depend ultimately on actors’ brain structures, which change only marginally over time, at least if one assumes that the intergenerational evolution of the human brain is an extremely slow process.5
On the one hand, this means that the capacity of single individuals to deal with complex situations requiring decisions has its limits. On the other, this insight also offers cause for hope: The better the functioning of the brain can be understood, and thus the behavior of people under specific circumstances, the better that situations that demand decisions can be modeled, analyzed and simulated.
The “big picture” in which individual decisions are made depends substantially on decisions that are made institutionally, in the sense that multiple people are involved in an institutionalized decision-making process. These include fiscal policies, business strategies, or supranational finance market regulations. In contrast to the way individual decisions are made, institutional decisions can be deliberately shaped. To be sure, individual choices form the basis for institutional decisions, as individual persons are ultimately involved in the shaping process. However, the process of institutional decision-making can make available problem-solving capacities that single individuals cannot possess. Institutional decisions are distinguished by the fact that they are rooted in the surrounding environment’s social systems, such as organizations or cultures, rather than solely in the brain structures of the individuals involved. Although these environmental features
5 At the same time, research shows that over the course of a full lifetime, the brain has a
large, mostly untapped development potential that could be better exploited by new types of lifelong learning (Staudinger, Marsiske and Baltes 1995).
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too possess a certain inertia, their underlying evolutionary processes are much faster than are their biological counterparts.
Decision-making processes must adapt themselves to globalization’s growing complexity. The point of leverage here lies in the shaping of institutional decision-making processes, in which the potential for achievement is greater than the sum of the individual participants’ potential, and which as sociocultural structures (as opposed to physiological brain structure), are malleable. The bottom line is that the development of the global economy is significantly influenced by decisions made at the level of governments, central banks, international organizations and multinational corporations. These decisions also form the framework that encompasses most global risks6. However, many of the fundamental principles on which
these institutional decisions depend are increasingly less appropriate within the complexity and dynamic shifts of the global economy. In what follows, we focus on four such challenges.
The growth paradigm increasingly conflicts with the reality of globally limited resources, and no longer promotes well-being within post-industrial societies.
Worldwide consumer demand, and thus resource requirements too, will climb rapidly in the years ahead. However, economic policy decisions relying wholly on economic growth are not indefinitely sustainable. On the one hand (at least under methods existing today), there is a limit to the amount that can be produced; on the other, the limited number of consumers and scarce time resources means that consumption cannot take place ad infinitum7. But even as
the possibility of unlimited growth is being called into question, so too is the concept’s basic sense. At a certain stage of growth, the contribution of
6 This does not apply to risks of natural origin such as pandemics or natural disasters.
Nevertheless, institutional decisions can in these areas too have an influence on the quality of preparedness and safeguards.
7 However, the time horizons of an initially steady rise in consumer demand and any
potential global consumer saturation differ substantially. This means that at least globally, a saturation point is unlikely to occur within the next few decades.
economic growth to the increase in people’s levels of satisfaction seems to drop sharply.
Explanations and predictions offered by economic models are increasingly
diverging from reality. Global amplification and feedback effects are enabling
the development of phenomena such as the current financial crisis, which most economists failed to predict, and which even in retrospect has eluded convincing explanation within the framework of established economic theories. This is because central elements of traditional economics, such as the Homo economicus model, the efficient-market hypothesis, closed equilibrium systems or assumptions of homogeneity, do not account for aspects such as cognitive biases, information asymmetries, phase transitions with multiple unstable equilibria or heterogeneity. There is a risk that economic policy strategies will be based on theoretical assumptions that effectively blind policymakers to important aspects of reality. The global economy becomes more susceptible to risks as a result, and consequently more fragile.
In many critical areas, the pursuit of short-term, local objectives leads neither to
long-term nor globally advantageous results. In large systems, which to a large
extent consist of unrelated individual components, global target values can be optimized by optimizing the corresponding values at the individual component level. With increasing complexity, however, this is less and less true: The welfare of people in one location depends ever more on the actions of other people at a distant location. Feedback effects associated with global interdependence lead to a divergence between short- and long-term goals, as well as between local and global targets.
Decision-making processes are increasingly inadequate to deal with rising levels
of complexity and uncertainty. Increasingly complex systems become
increasingly difficult to control, and develop what can sometimes be dangerous internal dynamics. The worldwide interdependence of political, economic and social systems, technological change, and the interaction of diverse global forces in the Anthropocene era create explosively climbing complexity, with which human capabilities are increasingly less able to cope. Furthermore, as the complexity of the systems in which we interact increases, structural uncertainties also deepen, and we are often forced to make decisions despite having only incomplete information available.
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In order to avoid sliding with ever greater frequency from one global crisis to the next, it appears essential to reconsider the bases for our decisions in a radical manner and address the corresponding challenges:
Solving the growth dilemma
Developing appropriate economic models
Developing new strategies and mechanisms for long-term and globally oriented action
Developing new decision-making processes able to deal with complex challenges
In the next section, a number of future-oriented approaches show how these challenges can be met.